People retiring at 65 will need to live at least 17 years to get back the money they have saved in their pension fund at today’s historically low annuity rates, according to Rockingham Retirement.
Failing to shop around for the best annuity is the primary cause of lower payouts, with the typical pensioner losing out on almost £200 a year of income, based on an average £30,000 pension fund, says the firm. Smokers or those with poor health are likely to lose significantly more.
Rockingham director of corporate communications Laura Goodman says annuity rates are at an all-time low, with retirees getting pension incomes half the size of those available in 1994.
She says the traditional annuity is “desperately poor value in 2010” and adds that the Association of British Insurers is failing to improve the plight of consumers despite recently updating its wake-up pack guidance.
Goodman says: “What about the millions of disadvantaged pensioners who are suffering dreadful rates simply because they are, for the most part, unaware they are allowed to put their fund with the best payers in the market?
“The ABI has made some progress in improving the annuitisation process, especially in speeding up the transfer of pension funds, but it is clearly not doing enough to alert consumers to the choices open to them at retirement.
“That means putting proper pressure on its members to get their act together. Pension firms continue to get fat and bloated, while millions suffer on lousy retirement income rates. It is not good enough.”
An ABI spokesman says: “This report underestimates the enormous value and peace of mind provided by annuities to UK pensioners.
Annuities provide certainty of income for the rest of a person’s life, regardless of how long this might be. On average, UK men live more than 17 years past their 65th birthday and women 20 years.”
The ABI adds that longevity is expected to improve further, with the latest official data predicting the number of 100-year-olds will double between now and 2019. It also insists that providers have improved communications to customers and transfer processes to encourage people to shop around.